This is a simple question and it probably has a simple answer. I often wonder who are the people buying the shares during market crash, in 1987 or yesterday: people who need long stocks for hedging? Gamma scalpers? Dump retail investors? Every share has to have a buyer, regardless how low the stock price drops, right? For each down tick, there is buyer buying the stock until the trading is halted, or stock drops to 0. So, during the most extreame crash hours say 2:30PM yesterday, who are the people still doing the buying?
In 87 the fed opened up the wallet to provide liquidity. Probally saved us from a real meltdown. Read the accounts sometime. I posted on a thread yesterday, the selloff was very orderly, still lots of liquidity. Es was moving in ticks most of the day. You will know when liquidity is drying up when it sarts moving around in handles. Usually occurs in the last couple of hours of trading. When liquidity dries up sellers are like whores. That's what the circuit breakers are for, to give the banking system time to prepare and provide liquidity, in a worst case scenerio. In 87 it was down to something like 15 minutes before the market opened the next day when funds were guaranteed to settle and the market would open.
FH, I think there are 3 types of buyers in an environment like Tue: 1) Short sellers covering. Easy to explain. 2) Dip buyers. Those trying to buy 'dips' b/c the market was/is in bullish run. 3) Long term buyers. Those that view Tue simply as an incredible day to purchase. If you believe markets will always rise, then you should be buying on days like Tue. Now, keep in mind that if you are a daytrader and were buying the dips stop losses were being triggered, which helped continue the downmove. If you went long and are a daytrader, odds are you were stopped out at some point. Maybe multiple points. So, you have trend guys jumping on the shorts and then throw in the longs getting stopped and it was a train with momentum.
You can add market makers and specialists to that list. If you place a market order to sell and there are no buyers THEY have to buy your stock and add it to their inventory.
Bingo. Without these entities operating under quasi-governmental mandate, sell orders could and in many cases, would, languish in perpetuity... Ain't 'free markets' wonderful?
Ahh, the market makers to make the market. That makes sense to me now. They are the last resort. Let me ask one more question then. If they are the only guy left to buy the market orders, what stops them to widen the bid/ask so large to give a $50 dollar bid to a $90 dollar stock?
and then the market makers sell to other market makers as there are still no buyers....perpetual motion in stock selling/buying during a correction/crash